"Smart" credit cards may be over before they started

By Dave Johnson

May 1, 2017 / 5:15 AM
/ MoneyWatch

U.S. economy

Smart credit cards, combining several credit card accounts on a single card, promised big improvements over traditional credit cards -- but they've had a rough ride. And now it looks like the journey is ending, with the last of the major would-be disruptors throwing in the towel. Plastc, in development since 2014, sent a letter to backers last week announcing that it was ceasing operations.

Over the last year or so, virtually all of Plastc's principal competitors have done the same -- Coin, Stratos and Swyp among them. Now, in the middle of 2017, consumers can't get a multiple-account electronic smart credit card at any price.

The idea behind smart cards was appealing to a generation of consumers steeped in the convenience of the internet, Bluetooth and smartphones. Smart cards promised to work just like a traditional card, complete with swipe strip and/or EMV security chip. But inside the wafer-thin structure, electronics allowed a single card to mimic multiple credit card accounts.

One card with a touch-sensitive button and e-ink digital display could behave like any of your Visa, MasterCard, American Express and Discover cards. The promise of carrying a single card was enough to fuel a number of pre-order campaigns.

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The first version of Coin, for example, attracted advanced sales from 350,000 people. Plastc was similarly successful, pulling in more than $5 million in its very first week of pre-orders, and as much as $9 million overall. Many consumers were clearly interested in these kinds of credit card replacements, but that doesn't mean they were without critics.

In 2015, Coin was among the first smart cards to land in customer hands. But it was marred by finicky performance: Customers said it didn't successfully swipe at many point-of-sale terminals or required multiple swipes to connect. Worse, some viewed it as DOA because it wasn't EMV-chipped, even though it was released the very year that the U.S. credit card industry started to migrate wholesale to EMV.

"For a smart card to have real value, it would have to work ubiquitously with all credit card issuers," said Henry Helgeson, CEO and founder of payment technology company Cayan. "That's really hard to do. For small crowdfunded companies to get all those issuing relationships and EMV card data seems like a monumental, if not impossible effort."

It's also debatable how well, once you get past tech-savvy early adopters, smart cards would resonate with average consumers. The technology brought all sorts of baggage and uncertainty, all just to save a few millimeters of thickness in a wallet.

Getting mainstream consumers interested in smart cards is challenging, said Teresa Epperson, partner in Financial Institutions at A.T. Kearney. "The value proposition must be compelling enough to change consumer behavior. Also, people perceive a risk to paying with something new. The great thing about MasterCard and Visa is they know it's going to work. You don't want to run into a problem charging your dinner when you're out on a date."

All these factors worked against the nascent smart card industry, and the final chapter of most smart cards has been fairly mundane. Coin was acquired by fitness band maker Fitbit (FIT), which wasn't interested in operating a smart credit card service. It bought Coin to integrate mobile payment tech into a line of fitness bands (which have yet to materialize).

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Stratos and Swyp also removed themselves from the board. Swyp, which has experienced a number of delays, is planning to ship cards to pre-order customers but discontinue additional sales or development. And following Stratos' acquisition by CardLab Innovation, that company announced it's not issuing new cards (but is supporting existing ones).

That leaves Plastc. Despite millions in pre-orders, Plastc shut down just last week after failing to successfully complete a round of Series A funding. The company claimed to be ready to start manufacturing with $3.5 million in funding.

When that failed to materialize in February, Plastc found a second investor willing to deliver $6.75 million. That deal collapsed in the 11th hour as well, and Plastc opted to cease operations before shipping any product at all.

In the space of about four years, a handful of companies challenged the credit card status quo and failed. Certainly, technology challenges and financing played a role, as did a failure to create a compelling story for consumers.

But the rise of other mobile payment systems no doubt played a role as well. Apple's (AAPL) Apple Pay emerged in 2014, and Android Pay followed a year later, eliminating the need to carry any card at all. "Smart cards aren't ahead of their time. They're actually behind their time," said Helgeson. "If it was ever going to be viable, it would have been in 2000, not 2017."

All that said, the mobile payment disruption isn't over. Even in the wake of Plastc's demise, new contenders have emerged, like EDGEcard. The odds are slim, but smart cards still have a chance to be remembered as the iPhones of mobile payment technology, rather than the PalmPilot.